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GDP comes in far worse than expected signalling trouble for the SA economy

by , 25 August 2015

Earlier today, Stats SA released its gross domestic product (GDP) data for the second quarter of the year.

The data surprised showing a sharp contraction despite economists expecting the economy to have grown during the three months.

So what's to blame for the slump?

Read on to find out more…

The South African economy contracts 1.3%

GDP data showed that the “economy contracted in the second quarter,” reports Bloomberg. From April to June, the economy “declined an annualised 1.3% from the previous quarter”.

From a survey of 18 economists conducted by Bloomberg, the consensus was “GDP to gain 0.6%”.

The surprise to the downside makes for a gloomy economic outlook for South Africa, says IOL. The country is dealing with a depreciating rand, problems with power supplies and “a slump in commodity prices”.

This is the first contraction in GDP “since the first quarter of last year,” notes BDLive. And follows a 1.3% increase in GDP in the first three months of the year.

The chief economist at FNB, Sizwe Nxedlana, said today’s data “raises the risk of the economy tipping into a technical recession in the third quarter of 2015,” reports Fin24. A technical recession is two consecutive quarters of negative growth.

Why is economic growth waning?

The economy came under pressure during the second quarter thanks to “lower economic activity in manufacturing, mining and agriculture,” says BDLive. This is mostly due to the rising cost of electricity coupled with “weak global and domestic demand”.

Manufacturing, which accounts for 13% of the South African economy, “contracted an annualised 6.3%,” mining fell 6.8% and agriculture a further 17.4%, notes MoneyWeb.

With the economy under pressure, the Reserve Bank will have to be cautious about further interest rate hikes. The economy is certainly under pressure and the future is looking bleak at the moment.

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GDP comes in far worse than expected signalling trouble for the SA economy
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